Rising Prices "Denting" Affordability in California; Significant Regional Variations

by devteam May 11th, 2013 | Share

The California Association of Realtors® (C.A.R.)rnsaid today that rising home prices in the state are putting a dent in housingrnaffordability.  Fifty-six percent ofrnhomebuyers earning the median income in their local area could afford tornpurchase a median priced existing single-family home in their local area in thernfirst quarter of 2012.  By the firstrnquarter of this year that percentage had dropped to 44.  The affordability of condominiums andrntownhomes in California dropped from 65 percent in Q1 2012 to 53 percent in thernmost recent period. </p

C.A.R.’s Traditional HousingrnAffordability Index (HAI) measures affordability on a statewide basis and alsornfor regions and select counties within the state.  C.A.R. says its Index is considered the mostrnfundamental measure of housing well-being for home buyers in the state.</p

On a state-wide basis a home buyerrnwould need a minimum annual income of $66,800 to qualify to purchase anrnexisting single-family home at the median price of $350,490.  Assuming a 20 percent down paymentrnand an effective interest rate of 3.55 percent the monthly mortgage paymentrnincluding taxes and insurance would be $1,670. rnThe median home price was $279,190 in first-quarter 2012, and an annualrnincome of $56,320 was needed to purchase a home at that price.  In the U.S. as a whole 65 percent ofrnhomebuyers could qualify for a mortgage under the same parameters compared torn71 percent a year earlier</p

All regions of the state experiencedrnsignificant year-over-year declines in housing affordability, with Bay Area andrnSouthern California counties recording the largest decreases in the index duernto higher home prices.</p

At an index of 77 percent, MaderarnCounty was the most affordable county of the state, while San Francisco and SanrnMateo counties tied for the least affordable at 23 percent.</p

While it is striking that, within even such a large state there can be suchrna range of affordability in terms of this index, when extrapolated to actual dollars, the variations between different areas of the same state are more startling.  Forrnexample, in the above referenced Madera County affordable means that a minimumrnincome of $24,230 is required to purchase the median priced house which costs $127,140rnto purchase and requires $610 in monthly payments.  In San Mateo that median priced home wouldrncost $814,000 or $3,880 in monthly principal, interest, tax, and insurancernpayments and to qualify would require an income of $155,140.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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